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Taiwan growth outlook brightens as factories gear up for smartphone demand

By J.R. Wu

TAIPEI (Reuters) - The launch of new tech products such as Apple's iPhone 6 will help Taiwan remain one of Asia's stronger exporters, bolstering its economic prospects this year amid a patchy global recovery.

After the government raised Taiwan's GDP outlook for 2014 last week, export orders on Wednesday will provide more evidence that prospects have improved for the trade-reliant economy. A manufacturing survey in July showed new export orders grew at their fastest rates since January 2011.

Taiwan's upgrade of economic growth estimates is unusual at a time when its North Asian neighbours are downgrading forecasts and rolling out stimulus measures to prop up growth.

The island's export orders in July are expected to grow 7.3 percent from a year earlier, a Reuters poll of analysts showed. That would moderate from a 10.6 percent rise in June, which far exceeded estimates and was the fastest pace in 1-1/2 years.

Underpinning the stronger momentum is the upcoming launch of the latest smartphone from Apple Inc, expected in the fall. Taiwan firms will be manufacturing a bulk of components and accessories for the new device.

"You usually don't hit critical mass until about 3-6 months after the launch," said Wai Ho Leong, regional economist at Barclays Capital in Singapore. Demand will gradually build up and is first reflected in orders and then actual exports.

The tech industry, the main driver of Taiwan's export machine, has been facing upheaval from changing consumer tastes worldwide as bulky computers give way to handheld devices. Adapting to the shift in trends, many of Taiwan's contract manufacturers produce high-end chips that power new generation smartphones and other digital gadgets.

Economists expect momentum to sustain through the second half of the year although it may be too soon to tell how much the orders will translate into actual exports. Export order data includes those from Taiwan-owned factories abroad, such as in mainland China, while exports capture only domestic shipments.

BETTER THAN RIVALS

While manufacturing slows in South Korea and Japan, Taiwanese producers have signaled a robust improvement in overall business conditions. Manufacturers are hopeful recovering growth momentum in the United States will help to counter a slowdown in China and soft economic conditions in Europe.

The pick-up in activity led Taiwan's statistics agency to raise its forecast for the island's economic growth this year, citing a healthy outlook for its semiconductor industry because of external demand in mobile devices.

China and Hong Kong together receive about 40 percent of Taiwan's exports while the United States is the next largest destination for Taiwanese goods. Many Taiwanese companies produce and assemble goods in their plants located in China, which are then exported from the mainland.

Taiwan's export orders are seen as a leading indicator of demand for Asia's exports and hi-tech devices, and typically can lead actual exports by two to three months. But just-in-time, quick turnaround manufacturing in the competitive consumer electronics sector means July orders likely won't fully reflect coming demand for new products.

Tieying Ma, economist at DBS in Singapore, cited base effects from last year as a reason for the growth slowdown in July, but she sees order levels staying strong even if annual gains for the rest of the year fall between 5 and 8 percent.

June orders totaled US$38.8 billion, a monthly level that has been largely sustained for the past four months running.

Taiwan-made semiconductors are a critical part of the global technology supply chain and are found in machinery and electronic products, as well as consumer electronic goods.

Jimmy Chen, an analyst at Masterlink Securities in Taipei, said that these chips and the components that make up handheld mobile devices have been the main drivers for orders.

Chen said he expects smartphone-related demand to begin showing up in August sales figures for local companies and continue through October and November.

(Editing by Jacqueline Wong)

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